Revitalizing the Indian Capital Market for faster Growth

Capital Market Growth

It is undoubtedly true that last century has seen a tremendous growth of interaction and participation of the world. Be it in terms of economics, society, culture, or politics, participation from major economies improved continuously and this helped in the designing of policy reforms of economies for faster growth. If we talk of Indian capital market, we see since the era of 1991 the market has been closely intertwined with global events and the capital Market of India has come a long way, surviving through the first crash of 1865 and many more since then.

Structural and technological reforms have helped the market grow exponentially as a result of which we see a completely transformed financial sector in our country. Regulators like SEBI, IRDA, and RBI has performed well when it came to safeguarding the interest of shareholders, mainly the retail investors. These bodies did a tremendous job in enhancing transparency in the entire system. SEBI played a pivotal role in controlling and stabilizing the market fluctuations to support healthy development of the market, as a result of which the capital market received much patronage from investors around the world and nation. Since 1992, when the economy was open FIIs made a cumulative net investment of US$ 125 billion in shares and US$ 32 billion in the debt market.

It is also reported that the Indian capital market alone received as high as 20% of the total FII investment flowing to emerging markets in last 15 years. This very well indicates the market potential.

The Indian Capital Markets in the Global Scenario

Further it was seen that several domestic and global events followed by the global meltdown had impacted the Indian capital market during the recession of 2008. The year 2012 saw contracted pace of growth for several leading economies like USA, UK, Japan and Eurozone. The eurozone faced the second recession when it showed negative growth. However economies like India and China though declined from their previous growth, but managed to report the levels of 5-6% so that the global economy grows by 2-3%. Due to the reversal of capital flows as part of the global deleveraging process, tremendous pressure was seen in forex and equity market. Unavailability of external source of funds compelled the Corporates to shift towards the domestic sources like Banks for credit. The substitution of overseas funding by domestic funding brought the money and credit market under pressure.

GoI and the apex bank of India, the RBI took several conventional and unconventional measures which were aimed at stabilizing market segments. Reduction in liquidity adjustment facility (LAF) interest rates, infusion of forex and domestic liquidity, easing norms pertaining to ECB etc. were seen during the period. If we talk of the Indian stock market we see that the volume of trading in the Indian Stock markets has recorded a 28% compounded annual growth rate (CAGR), during the 10 year period from 2000 to 2010. A significant growth in India’s market capitalization as a percentage of its GDP was seen which rose from 19% in 1990-91 to a record of 132% in 2010-11. Though during the global meltdown, the sector lost market capitalization of 54%.

Mutual Fund Industry

Mutual fund industry comparatively showed a better performance, as during the financial year 2012-13 mutual funds net mobilized Rs 1,81,000 Crore which is thrice the amount mobilized during the same period in 2011-12. During 2013, majority of the transaction by mutual fund industries in India had taken place in the debt market and equity formed a very low fraction in the overall transaction. The Indian Mutual Fund Industry has undergone tremendous change in the recent years by offering low cost or differentiated products to clients. In order to ensure future growth the industry needs to focus on improved communications of performance, financial awareness and should also implement simplified and common KYC processes.

To conclude we can say that the global financial meltdown has heavily eroded the domestic market but the economy is still showing positive signs. The stimulus provided by the finance minister in the budget aiming at reducing the fiscal deficit will help the economy get back to its growth rate of 8% and the Indian capital market will see a faster growth than it had experienced in the past.

Niraj Satnalika

Niraj is an MBA in International Business (Finance). Prior to this he completed B.Tech in Electronics and Instrumentation. He is currently working with Confederation of Indian Industry (CII), Kolkata in capacity of Consultant.
Satnalika is actively involved with an NGO and works towards promoting education among the underprivileged.